The Nigerian insurance industry is set to undergo a transformative phase, with insurers projected to inject approximately N600 billion in fresh capital to meet evolving regulatory requirements.
This is according to the 2025 Nigerian Insurance Industry Report, released by Agusto & Co., which predicts that the impending Nigeria Insurance Reform Bill will fast-track the sector’s transition to a risk-based capital framework, ultimately strengthening underwriting capacity and financial resilience.
The anticipated capital raise is driven by the planned overhaul of the industry’s regulatory framework, which is expected to introduce higher minimum capital requirements across various business segments. The reform, which has been in the pipeline for over a decade, is now expected to be signed into law before the end of 2025, compelling insurance firms to bolster their financial base in compliance with the new capital thresholds.
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The Shift to Risk-Based Capital and Industry Capitalization
The Nigeria Insurance Reform Bill is expected to usher in a more structured approach to capital adequacy, with insurers required to hold capital in line with the specific risks they underwrite. The bill will replace the existing flat capital requirement structure, which has long been criticized for failing to account for differences in insurers’ risk exposures. The framework is expected to reduce systemic vulnerabilities and improve the industry’s ability to absorb shocks, by aligning capital requirements with risk levels.
Agusto & Co. estimates that the transition will necessitate a N600 billion capital injection across the industry, as insurers scramble to meet the new capital benchmarks. While the recapitalization process will be phased over time, a surge in capital-raising activities is expected in 2025, with firms seeking to position themselves for compliance ahead of regulatory deadlines.
In its report, Agusto & Co. stated: “The Nigeria Insurance Reform Bill, which seeks to overhaul the industry’s regulatory framework, is expected to be passed into law before 31 December 2025. We believe the bill would compel the National Insurance Commission (NAICOM) to fast-track the transition to a risk-based capital regime (initiated over a decade ago).
“This legislation would significantly impact the industry’s capitalization, given the planned increase in the minimum capital requirement across business segments. We anticipate a capital injection of circa N600 billion as insurers move to comply with the new thresholds, leading to enhanced underwriting capacity and greater risk retention.”
The report further highlighted that the shift to risk-based capital will reshape underwriting practices, encouraging insurers to adopt more robust risk assessment strategies to optimize profitability. This is expected to drive innovation, particularly in the adoption of technology-driven solutions aimed at improving penetration and efficiency.
Short-Term Challenges Amid Lower FX Gains
While a larger capital base is expected to enhance long-term profitability, the industry is likely to face short-term challenges, particularly as foreign currency revaluation gains—which have significantly boosted earnings in recent years—are projected to decline.
Over the past two years, insurance companies benefited from the depreciation of the naira, which inflated the value of dollar-denominated assets, leading to substantial FX revaluation gains. In FY 2023 and FY 2024, these gains accounted for approximately 50% of total investment income, significantly bolstering insurers’ bottom lines.
However, with the naira expected to stabilize following recent foreign exchange market reforms, these gains will likely diminish. This could lead to a lower return on equity (ROE) for insurers, with Agusto & Co. projecting a decline to 22.8% in 2025, compared to previous years.
The report noted: “We expect the enlarged portfolio, with the potential to support profitability, to stimulate more efficient investment portfolio management. However, the expected stability of the exchange rate would moderate the foreign currency revaluation gains, which have bloated investment income and accounted for circa 50% of earnings in FY 2023 and FY 2024.
“The anticipated decline in asset yield—as the rebased Consumer Price Index (CPI) reflects disinflation—would also moderate investment income. Thus, we foresee a 957-basis-point decline in the return on average investment, as the impact of moderated investment income is amplified by the enlarged portfolio.”
Profitability Outlook and Industry Adjustments
With the decline in FX revaluation gains, the industry’s profitability is expected to weaken in the near term. Agusto & Co. predicts that post-tax return on average equity (ROE) will drop to 22.8% in 2025, marking a retreat from the recent profit windfalls.
However, the report argues that sustainable profit growth—excluding the volatile FX gains—will likely maintain an upward trajectory. This will be supported by:
- Stricter enforcement of compulsory insurance policies, which could expand premium income.
- More efficient product distribution, leveraging digital channels to improve penetration.
- An enlarged capital base, allowing insurers to retain more risk and reduce reliance on reinsurance.
As firms adapt to the new regulatory environment, the insurance sector’s profitability mix is expected to shift, with investment income playing a less dominant role, while underwriting profits become more central to earnings.